According to the article, the Obama administration could announce a program modeled on one that was originally devised by Columbia University economists Glenn Hubbard and Christopher Mayer. Under that plan, all homeowners with a Fannie or Freddie-backed mortgage can refinance with a new mortgage at a fixed rate of 4.2% or less if they have been current on their payments for at least three months. And the clincher is that the plan imposes no other qualification – no appraisal or income verification.

The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year, according to Hubbard. It is expected to help refinance $3.7 trillion in mortgages and would come at an immediate fixed cost of $121 billion to the government.

I can’t begin to tell you what happens if that occurs.

Remember that everything is in fact a balance sheet. Someone owns all those mortgages — Fannie and Freddie guarantee them but do not own most of them.

Who owns them?

Little old ladies. Literally.

Your pension fund — both public and private pension funds.

You, maybe, through various bond funds and other similar instruments.

Note that pension funds typically assume about 8% in total returns a year. Most current coupons that would be refinanced are in the 6-7% range, so this would be a cut in income to those holders of roughly 1/3rd, making it even more-impossible for those pensions to ever pay as agreed (they’re already in monstrous trouble, by the way.)

This plan, if Obama were to do it (and violate the Constitution again in making the appointment) will not increase GDP materially, nor will it actually improve the economy. It simply will take that $100 billion a year from MBS investors, most of whom are in fact pension funds and others who would and do immediately spend that money, and give it to homeowners.

In other words it will screw retired (and soon-to-be-retired) people and give their money (again) to those who foolishly overspent on houses they cannot afford under the current terms, just as have “zero interest rates” generally.

Do not be fooled. This will generate fee income for the banks of course but there will be little or no net economic benefit as a whole – it will simply take funds from one person and give them to another. In fact, when you account for the fees, it isnegative sum to everyone except the banks (who get the fees.)

Update 3:34 PM CT — CNBC is reporting that the Administration has denied any intention to push such a plan.